Madagascar Oil restructuring plan receives High Court approval

On 15 August 2025, the High Court of England and Wales delivered a significant judgement in Madagascar Oil Limited (MOL), sanctioning the company's Part 26A restructuring plan despite opposition from a dissenting creditor class. Mr Justice Richard Smith's decision provides important guidance on cross-class cram downs and international recognition of restructuring plans.

MOL's financial distress stemmed from operational stoppages at its principal asset, the Madagascar Oilfield, which ceased generating revenue in 2016. The company's complex corporate structure, comprising shares in Madagascar Oil S.A. (MOSA) and substantial intercompany loans, created additional complications for the restructuring process.

The proposed plan aimed to compromise creditor claims through a combination of equity participation and limited cash settlements. Primary creditor BMK Resources Limited supported the arrangement, whilst Outrider Master Fund LP mounted vigorous opposition, contending that liquidation would yield superior recovery rates.

Key legal principles established

The judgement reinforced established precedents from Saipem and Thames Water Utilities regarding the sanctioning criteria for Part 26A plans. Justice Smith emphasised that the "no worse off" test remained paramount in evaluating fairness to dissenting creditors, finding that Outrider's projected recovery under the plan, whilst modest, represented a realistic assessment compared to liquidation alternatives.

Crucially, the court addressed concerns regarding international enforceability, particularly in Mauritius and Madagascar jurisdictions. The judge concluded that the plan possessed reasonable prospects for cross-border recognition, rejecting arguments that sanctioning would prove futile due to enforcement difficulties.

Cross-class cram down mechanics

The case demonstrates the practical application of cross-class cram down provisions where supporting creditor classes can bind dissenting ones. Justice Smith's analysis focused on whether the plan's terms created artificial class divisions or genuinely reflected creditor interests, ultimately finding the classification appropriate.

The court's evaluation of alternative outcomes proved decisive. Evidence suggested that MOL faced inevitable liquidation without restructuring approval, supporting the view that even modest recoveries under the plan exceeded the likely nil returns from insolvency proceedings.

Third-party releases and creditor protections

The sanctioned plan included releases for certain third-party claims, reflecting the court's pragmatic approach to facilitating corporate recovery. These provisions, whilst controversial, were deemed necessary to provide MOL with sufficient operational freedom to execute its business revival strategy.

Transparency requirements were rigorously observed, with creditors receiving comprehensive financial evaluations and restructuring documentation. This procedural compliance strengthened the court's confidence in the plan's legitimacy and creditor consultation process.

Implications for future restructurings

The MOL judgement contributes to the evolving jurisprudence surrounding Part 26A applications, particularly regarding international effectiveness and cross-class dynamics. The decision suggests courts will adopt a commercially realistic approach when evaluating restructuring alternatives, prioritising achievable outcomes over theoretical recoveries.

The ruling enables MOL to proceed with debt consolidation and capital injection necessary for resuming oil production operations. More broadly, it demonstrates the judiciary's willingness to support corporate rescue mechanisms where creditor interests are adequately protected and procedural requirements satisfied.

This precedent will likely influence future restructuring cases involving complex international elements and dissenting creditor classes, reinforcing the effectiveness of Part 26A as a corporate rescue tool in the English legal framework.

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